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Summary-Report on Economic Development in July 2009

The year-on-year rate of inflation measured by the harmonized index of consumer prices reached -0.7 % in the euro area countries in July and decreased when compared with the June. According to the flash estimate of the Eurostat, the decline of the economy of the euro area deepened in the second quarter of 2009 to 4.6% when compared with the same period of the previous year. The level of the exchange rate of the euro against the dollar was on the same level at the end of July as it was in June. The Governing Council of the ECB during its meeting in August decided that the interest rate for the main refinancing transactions and the interest rate for overnight refinancing and overnight sterilisation transactions would remain unchanged on the level of 1.00%, respectively 1.75% and 0.25%.

Of the CEE countries inflation slowed down only in the Czech Republic in July, in Hungary and Poland the price level increased. According to the flash estimate of the Eurostat, the decline of the economy in the Czech Republic deepened to 4.9% on a year-on-year basis and that of Hungary to 7.9%. The weakening of the exchange rates in the region from the beginning of the month stopped in the second decade of July and the rates started to appreciate as a consequence of domestic fundamentals. The trend of appreciation stopped by the end of July. The Polish zloty against the euro mostly appreciated when compared with the end of June. The Magyar Nemzeti Bank decreased its key interest rates in the late of July (by 1 of a percentage point to 8.5%) and the Czech National Bank did the same at the beginning of August (by 0.25 of a percentage point to the lowest level in the history to 1.25%). The reference interest rate remained unchanged in Poland following the decrease of the last month.

The year-on-year inflation rate in Slovakia decreased in July to the lowest value from the beginning of the HICP monitoring to the level of 0.6 % (by 0.1 of a percentage point). The HICP inflation recorded a lower level than the NBS´s expectations, above all as a consequence of more considerable than expected decline in prices of seasonal foodstuffs and a lower increase in price of the fuels. Almost all basic groups of HICP inflation recorded slowdown of a year-on-year growth rate of prices. The only component of inflation which stagnated on a year-on-year basis were the prices of energy. In the area of production costs, a year-on-year decline in prices of industrial production products and in building(construction) works prices deepened in June. A year-on-year decline in agricultural products slowed. Prices of flats also recorded decline within monitored price indexes when the average price for 1 square metre in the second quarter of 2009 decreased by 13.4% on a year-on-year basis.

According to the flash estimate of the Statistical Office of the SR, the gross domestic product really declined in the second quarter of 2009 by 5.3% in stable prices and the overall employment declined by 1.3% on a year-on-year basis. The GDP decreased more considerably in the second quarter of 2009 when compared with the expectations.

The economy recorded an increase on a quarter-on-quarter basis which implies that the local bottom was probably reached in the first quarter of 2009.

Reached current account balance worsened in June when compared with May as a consequence of change of May surplus to the deficit in the trade balance. The monthly data in June recorded deceleration in the decline of the industrial production index, the building production recorded a moderation in its fall. Some of the significant producers increased its production within key branches of the industry and prolonged the working hours as a consequence of increase in the demand.

July research of prosperity in the industry recorded a considerable improvement of the indicator of expected production, a moderate improvement of the demand and decline in supplies.

Receipts in retail and wholesale business, sale and maintenance of motor vehicles recorded a mild slowdown in the year-on-year decline in June when compared with May. On the contrary, the decline in the receipts of accomodation, restaurants and beverage service activities deepened. The overall indicator of the economic sentiment continued in a positive development in July when the confidence in the industry increased and the consumers´ confidence also improved. The building industry recorded a slight decline in pessimism. The confidence in retail and services developed in a negative way.

The year-on-year growth rate of nominal wages accelerated in June following the slowdown of the last month.

The wages in the selected market services, retail and in the activities of restaurants, beverage service activities and industry increased most quickly.

The growth rate of real wages decreased but more moderately when compared with May. The current development in the selected branches indicates the slowdown of the growth in nominal wages for the whole economy on average for the second quarter of 2009 when compared with the previous quarter of the year. The rate of employment decreased more quickly in June when compared with the previous month, mostly in the selected market services, restaurants, beverage service activities and in the wholesale. The rate of registered unemployment reached 11.8 % in June and increased by 0.4 of a percentage point on a month-on-month basis.

The deposits decreased more considerably in June ( partly as a consequence of payment of dividends) and the volume of loans of monetary financial institutions against the private sector increased. The volume of loans to non-financial corporations continued in its decreasing trend when the volume of loans to the households continued to increase.

The main determinant of the growth of loans to the households was an increased interest in the real estates loans. The volume of consumption loans continued in its increase from the previous months.

The decrease of the key interest rates of the ECB stopped in June. The interest rates on loans to non-financial corporations developed differently in June depending on the volume of the offered loan. Interest on loans to large corporations decreased on the one hand, the growth of interest rates of the loans to small and medium-sized enterprises continued on the other hand. The interest rates of the household loans did not change substantially.

Regarding deposits of non-financial corporations, the development on the interbank market reflected in the most considerable way when the decrease of the shortest market rates was immediately reflected in the decrease of the interest rate on the current accounts and on further shortest clients´ rates. The interest rates of households´ deposits continued to stagnate.

Jana Kováčová
Spokesperson of the NBS

National Bank of Slovakia
Communications Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2168,+421-2-5865 2168, +421-2-5787 2169, 421-2-5865 2169

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